US Moves 1 Day Closer to Falling off Fiscal Cliff…and more

Best of the Bond Market for May 22, 2012 

FT: US ‘Fiscal Cliff” looms into view –  The clock is ticking on the expiry of tax cuts and the introduction of $1.2tn in spending reductions over 10 years, formalised after the debt ceiling was raised – eventually – last year.  “This would be a self-inflicted tsunami that would hit the economy through fiscal contraction,” says Peter Orszag, former head of the Obama administration’s office of management and budget and now vice-chairman at Citigroup….At the very least, the looming fiscal cliff presents a case for staying in US Treasury bonds

WSJ: Preparing for the End of the Bush Tax Cuts - If they are allowed to expire then the existing 10% bracket will go away, and the lowest “new” bracket will be 15%. The existing 25% bracket will be replaced by the new 28% bracket; the existing 28% bracket will be replaced by the new 31% bracket; the existing 33% bracket will be replaced by the 36% bracket; and the existing 35% bracket will be replaced by the 39.6% bracket.  Pretty much everything else you want to know is in this article.

Marketwatch: Treasurys fall ahead of EU meeting, after auction - Yields on 10-year notes which move inversely to prices, rose 5 basis points to 1.79%, Thirty-year bond yields increased 7 basis points to 2.88%, and the Treasury Department sold $35 billion in 2-year notes at a yield of 0.30%. 

The Bond Buyer: Muni Market - Glut of Large Deals, Off Treasuries Lead to Cheaper Yields - Tax-exempt yields in the belly of the curve are running about five to 10 basis points higher Tuesday as a slew of large deals and lighter Treasury yields give the market a weaker direction. The benchmark 10-year yield and the 30-year yield closed Monday steady at 1.78% and 3.09%, respectively. The two-year yield remained at 0.31% for the 24th consecutive trading session.

WSJ: Preparing for the End of the Bush Tax Cuts - If they are allowed to expire then the existing 10% bracket will go away, and the lowest “new” bracket will be 15%. The existing 25% bracket will be replaced by the new 28% bracket; the existing 28% bracket will be replaced by the new 31% bracket; the existing 33% bracket will be replaced by the 36% bracket; and the existing 35% bracket will be replaced by the 39.6% bracket.  Pretty much everything else you want to know is in this article.

The Big Picture: A Big Junk Bond Trade - $110.3 million trade in the BKLN ETF and a $780 Million trade in the JNK.  The Big Picture says they are highlighting these trades because “We are highlighting this story because we get the feeling this is not a one-off trade and the final word on this has not been written”

Pat Stout: Yield Curve and Ways to Profit - Good summary of what has happened in the yield curve so far in 2012.

TimesUnion: U.S. Treasury Encourages Gift of Savings Bonds this Graduation and Wedding Season – They may have more success with this campaign if they bring back the paper savings bond.…Digital gift anyone?

Barron’s PIMCO Total Return ETF hits $1 Billion in Assets - Bill Gross’ Pimco Total Return ETF (BOND) may be the most immediately successful ETF, ever. The fund has been on the market for a little under 12 weeks and it just surpassed $1 billion in assets under management….its also beating the Total Return fund which its designed to track by over 1% during that same time.  

Business Insider: The Amazing Life Of Jeff Gundlach, The World’s Greatest Bond InvestorThe king of bonds and founder of DoubleLine Capital Management has not only experienced a second act, but a third.

FT: Germany Expected to Borrow for 0% Interest - Germany is to sell a zero coupon bond for the first time in an auction of two-year government debt on Wednesday, as investors concerned about a potential Greek exit from the eurozone flock to safer assets.

Bespoke Investment Group: 10-Year Yield is Less than Half of All S&P 500 Stocks (h/t @abnormalreturns)- As of today’s close, there are now 271 stocks in the S&P 500 that have a greater yield than the 10-Year US Treasury.  Of the remaining 229 stocks in the index, 126 have a dividend yield that is less than the 10-Year US Treasury, while 103 pay no dividend at all.

Bloomberg: Alabama Lawmakers’ Inaction Merits Downgrade, Fabian Says – Lawmakers’ inaction shows “a culture of unwillingness to pay,” Fabian (head of municipal market advisors) said today in a telephone interview. “If trouble were to occur elsewhere with other bonds, even those sold by the state, it’s really not clear that the Legislature or the governor would do the right thing by bondholders.”

LA Times: Record number of CA school districts in state face bankruptcy (h/t @dlevineMW) – The Inglewood Unified School District and 11 others -– most in northern California — are currently not able to pay their bills this school year or next, according to a biannual report on the financial health of the state’s 1,037 school systems compiled by the state Department of Education. An additional 176 school districts may not be able to meet their financial obligations.

WSJ: 10 of 12 Regional Fed Banks Vote for Flat Discount RateCurrent rate is .75%. Two district banks pushed for a different approach. As they did in late 2011, directors from the Boston Fed called for a decrease in the discount rate to 0.50%, while directors of the Kansas City Fed voted for an increase to 1.00%.

 

 

 

Receive the Best of the Bond Market Via Email: Delivered by FeedBurner
Print Friendly


Leave a Reply

Your email address will not be published. Required fields are marked *